The telecom industry is about to get shaken up, as Apple Inc.’s (AAPL) newest iPhone containing revolutionary new SIM-card technology that allows customers to switch between carriers at will is expected to debut this fall. Telecom giants like AT&T Inc. (T), Verizon Communications Inc. (VZ), Sprint Corporation (S) and T-Mobile US Inc. (TMUS), which have traditionally been able to maintain a lucrative stronghold over their customer base, will find themselves having to defend the relatively stable relationships they have built with their customers against Apple’s new “eSIM” technology. With Apple’s current size and reach, that won’t be easy, according to Barron’s.

eSIM Winners and Losers

Winners Losers
 Apple  AT&T
 Gemalto  Verizon
 STMicroelectronics  Sprint
   T-Mobile

What Is eSIM?

SIM, or “subscriber identity module,” is the current technology used by carriers to identify their customers in order to allow those same customers access to their cell networks. It comes in the form of a small card provided by carriers to their customers after a contract has been purchased. To change carriers, a customer has to obtain a new SIM card. Not so with the new eSIM technology, which is embedded directly in the phone, allowing customers to easily switch between carriers without having to go through the hassle of obtaining a new SIM card.

Little known companies like Netherlands-based Gemalto and the 164-year-old privately owned German-based Giesecke & Devrient, which is also the first company to have made the original SIM card, are some of the few eSIM manufacturers and providers. STMicroelectronics (STM), headquartered in Switzerland, is another, and recently “may have won” business from Apple to install eSIM technology in the newest iPhone models, according to Craig-Hallum’s Anthony Stoss, as reported by Barron’s. (To read more, see: 3 Chipmakers That are Tied to Apple’s iPhone.)

Telecom Shake-Up

Phones equipped with the new eSIM technology will allow users to switch between carriers as easily as if they were switching from one WiFi network to another. By removing the inconvenience of having to go into the store to change carriers or order a new SIM card for delivery, eSIM allows customers to base their decision to switch carriers on their own changing needs as well as the individual merits of specific carriers. With the inconvenience obstacle removed, carriers will be forced to compete even harder to maintain customers.

The incentive for Apple, which is already using STM’s eSIM technology in the iWatch 3 cellular models, is to weaken the hold that carriers have on their customers in the hopes of strengthening its own hold on its customers. Such a strategy fits nicely with Apple’s shift towards being more of a service-based company and less of a product-oriented one, according to Barron’s. (To read more, see: How Apple Watch Threatens AT&T, Verizon.)

Whatever the benefits for Apple, the threat to cell carriers in reducing their role in mobile device authentication and servicing is a big one. As an example of just how worried some of the big telecom giants are, there has already been an investigation by the U.S. Department of Justice on whether Verizon and AT&T conspired together with the global cellular standards-setting body, known as the GSM Association, to hinder further development of eSIM.

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